In a move that could come as a breather for companies and even corporate individuals, an Authority for Advance Ruling (AAR) has permitted tax credit on goods and services tax (GST) paid on upfront lease premium. Until now, this was disallowed.

Tamil Nadu AAR in a ruling on July 27 had said, “The upfront premium made is the lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for the services of ‘renting of immovable property' for business purposes.”

The upfront premium paid is not related to construction activity of such covered space but against the rental value for the period of rent calculated for the period of lease and collected upfront, the judgement said adding that input tax credit should be allowed on this upfront payment of rent.

Input tax credit is a mechanism under GST where part of the tax paid can be set off against future tax liability.

This ruling from the AAR assumes significance as it would encourage many tenants to challenge the taxman's stance, according to experts. Input tax credit is generally not permitted by tax authorities on the ground that same is in relation to immovable property, hence restricted.

The tax authorities also argue that since no input tax credit is allowed in any real estate deal the same principal should apply to lease premiums, in disallowing it.

GST is paid on the lease premium, which is an amount agreed upon in most cases.

Source: Times Now
https://www.timesnownews.com/business-economy/economy/input-tax-credit-should-be-allowed-on-gst-paid-on-upfront-lease-premium-aar-ruling-article-93787858